Extension of Timeline for Implementation of Instructions on Fair Lending Practice – Penal Charges in Loan Accounts

RBI had issued a circular dated 18 August, 2023 on Fair Lending Practice – Penal Charges in Loan Accounts wherein RBI had on review of the practices followed by REs for charging penal interest/charges on loans, issued certain instructions to REs to ensure reasonableness and transparency in disclosure of penal interest.

These instructions were to come into effect from 1 January,

However, since some regulated entities (REs) have requested further clarification and additional time to adjust their internal systems and implement the circular, it has been determined that the timeline for implementing the instructions will be extended by three months.

Therefore, it is essential for REs to ensure that the instructions are followed for all new loans obtained from 1 April 2024 onwards. For existing loans, the transition to the new penal charges regime will be implemented on the next review or renewal date that occurs on or after 1 April, 2024, but no later than 30 June, 2024.

These instructions will apply to:

  • All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional
  • Rural Banks, excluding Payments Banks)
  • All Primary (Urban) Co-operative Banks
  • All NBFCs (including HFCs) and
  • All India Financial Institutions (EXIM Bank, NABARD, NHB, SIDBI and NaBFID)

A comprehensive set of frequently asked questions (FAQs) will soon be uploaded to the FAQs section of the RBI website. These FAQs aim to provide clear explanations and address any doubts or concerns related to the implementation of the circular.